glossary
The number behind OptAlgo's overfit verdict: how likely is it that your Sharpe is real, given how many things you tried to get it.
The deflated Sharpe ratio (DSR), introduced by Bailey and López de Prado, is the probability that a strategy's observed Sharpe ratio exceeds the expected maximum Sharpe ratio of a set of unskilled strategies, after accounting for the number of trials, the backtest length and the skewness and kurtosis of returns. A DSR near 1 means the result is unlikely to be luck; a DSR below 0.95 is commonly read as not significant.
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The more variants you test on the same data, the higher the best Sharpe you will find by chance. The DSR raises the bar in proportion to the number of trials, so the best of fifty tries must clear a much higher hurdle than a single try.
Each run reports the DSR probability and the number of variants of the idea tried in the last 30 days. Verdicts: ok, caution, likely overfit, no edge. Pass a study tag on every run of one idea so the count is complete.
It does not test on unseen data; it corrects a statistic. Pair it with a walk-forward or holdout before trusting a strategy.
faq
OptAlgo reads 0.95 and above as ok. Below that, the result is within what luck would produce for that many trials.
Yes. Any run of the same idea on the same period is a trial, including a different symbol or timeframe.